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Tuesday, September 10, 2019

M.Com Previous Year Solved Papers: Business Environment' 2010 (August - Incomplete))

2010 (August)
Paper: 101
Full Marks: 80
Time: 3 hours
Answer all questions. The questions are of equal value. (16 Marks each)
1.       (a) Discuss briefly the elements of Firm’s environment.
Ans: Factors/Components/Elements of business environment
On the basis of extent of intimacy with the firm, the environmental factors may be classified into different levels or types. There are broadly two types of environment, the internal environment, i.e. factors internal to the firm and the external environment i.e. factors external to the firm which have relevance to it.

The internal factors are generally regarded as controllable factors because the company has control over these factors; it can alter or modify such factors as its personnel, physical facilities, organisation and functional means such as marketing mix to suit the environment.
The external factors on the other hand are, by and large, beyond the control of a company. The external or environmental factors such as the economic factors, socio-cultural factors, government and legal factors, demographic factors etc., are therefore generally regarded as uncontrollable factors.
Some of the external factors have a direct and intimate impact on the firm (like the suppliers and distributors of the firm). These factors are classified as micro environment, also known as task environment and operating environment. There are other external factors which affect an industry very generally (such as industrial policy, demographic factors etc.). They constitute what is called macro environment, general environment or remote environment. We may therefore consider the business environment at three levels:
a)      Internal environment
b)      Micro environment/ task environment/ operating environment
c)       Macro environment/ general environment/ remote environment
Although business environment consists of both internal and external environments, many people often confine the term to the external environment of business.
Internal Environment:
The factors in internal environment of business are to a certain extent controllable because the firm can change or modify these factors to improve its efficiency. However, the firm may not be able to change all the factors. The various internal factors are:
a)      Value system : The value system of an organisation means the ethical beliefs that guide the organisation in achieving its mission and objectives.  It is a widely acknowledged fact that the extent to which the value system is shared by all in the organisation is an important factor contributing to its success.
b)      Mission and objectives : The business domain of the company, direction of development, business philosophy, business policy etc are guided by the mission and objectives of the company.  The objective of all firms is assumed to be maximisation of profit.  Mission is defined as the overall purpose or reason for its existence which guides and influences its business decision and economic activities.
c)       Organisation structure : The organisational structure, the composition of the board of directors, the professionalism of management etc are important factors influencing business decisions. The nature of the organisational structure has a significant influence over the decision making process in an organisation.  An efficient working of a business organisation requires that the organisation structure should be conducive for quick decision-making. 
d)      Corporate culture : Corporate culture is an important factor for determining the internal environment of any company.  In a closed and threatening type of corporate culture the business decisions are taken by top level managers while the middle level and lower level managers have no say in business decision-making.  This leads to lack of trust and confidence among subordinate officials of the company and secrecy pervades throughout the organisation.  This results in a sense of alienation among the lower level managers and workers of the company. In an open and participating culture, business decisions are taken by the lower level managers and top management has a high degree of confidence in the subordinates. 
e)      Quality of human resources  :  Quality of employees that is of human resources of a firm is an important factor of internal environment of a firm.  The characteristics of the human resources like skill, quality, capabilities, attitude and commitment of its employees etc could contribute to the strength and weaknesses of an organisation.  Some organisations find it difficult to carry out restructuring or modernisation plans because of resistance by its employees. 
f)       Labour unions : Labour unions collectively bargains with the managers for better wages and better working conditions of the different categories of workers. For the smooth working of a business firm good relations between management and labour unions is required.
g)      Physical resources and technological capabilities : Physical resources such as, plant and equipment and technological capabilities of a firm determine its competitive strength which is an important factor for determining its efficiency and unit cost of production.  Research and development capabilities of a company determine its ability to introduce innovations which enhances productivity of workers. It is, however, important to note that the rapid technological growth and the growth of information technology in recent years have increased the relative importance of intellectual capital and human resources as compared to physical resources of a company. 
External Environment:
The external environment is made up of micro and macro environment.
Micro Environment: This refers to the factors which influence the prospects of a particular firm; the firm can influence them with certain efforts. They are as follows:
a) Customers: The type and the nature of the customers influence the rate of growth of any firm. The firm has to be very particular about choosing the inputs and transforming them in to the output. The cost factor is subsidiary if the firm is dealing with such customers. If the customers are more commoners the quality of the commodity if less important than the cost of production. The customers want the commodity at a lower price so the firm will have to conscious about the cost in purchasing the inputs, in employment of labour, in packing and such other factors influencing the cost.
b) Competitors:  In modern age an absolute monopoly is a very rare thing. Most of the FIRMS have to work in some type of competition such as Monopolistic Competition or Oligopoly. A Firm has to be particular about the intensity of the competition. If the competition is severe the firm will have to be very particular about keeping the costs at the lowest level so that it can sell the commodity at a competitive price.
c) Suppliers:  The quality of the commodity and the cost of production are considerably influenced by the supplies of the inputs. If the inputs are supplied at economical prices, are of standard quality and if the supply is uninterrupted and timely the firm can produce a standard quality of a commodity and sell it at reasonable prices. Often the firms employ more than one supplier so as to ensure an uninterrupted supply of inputs. If the supplies of inputs are regular, consistent and reliable there is no need to keep a larger quantity in stock.
d) Channel Intermediaries: They refer to the different levels in the chain from the production unit to the final customer. The chain incorporates the stockists, the wholesalers, the distributors, the retailer etc. If there is a high level of efficiency maintained at every part of the chain the commodity can reach the final consumer in good condition and at a reasonable price. So the Firm has to select and maintain efficient intermediaries. The firm has to offer them proper terms
e) Society: The prospects of a firm depend upon the society in which it has to work and sell its products. In a homogenous society the job of the firm is easy. The people have almost the same habits likes and dislikes, values and ethical norms. In a heterogeneous society the job of the firm is difficult. A particular product may be acceptable to a particular section of the society but not acceptable to some other sections. In a country like India a firm has to into consideration all types of sections of the community such as the religious sections, the caste, the sect, language, region etc.
Conclusion: All these forces influence the chances available to a firm to survive and develop.
Macro Environment: The macro environment comprises of those forces which influence all business firms operating in an economy. They can be studied under the following categories: economic environment, political and regulatory environment, social/ cultural environment, demographic environment and technological. The components of these environment are discussed as below:
a) Economic Environment:  The survival and success of each and every business enterprise depend fully on its economic environment. The main factors that affect the economic environment are:
(i) Economic Conditions: The economic conditions of a nation refer to a set of economic factors that have great influence on business organisations and their operations. These include gross domestic product, per capita income, markets for goods and services, availability of capital, foreign exchange reserve, growth of foreign trade, strength of capital market etc. All these help in improving the pace of economic growth.
(ii) Economic Policies: All business activities and operations are directly influenced by the economic policies framed by the government from time to time. Some of the important economic policies are: Industrial policy, Fiscal policy, monetary policy, foreign investment policy and Export –Import policy. The government keeps on changing these policies from time to time in view of the developments taking place in the economic scenario.
(ii) Economic System: The world economy is primarily governed by three types of economic systems, viz. Capitalist economy; Socialist economy; and Mixed economy. India has adopted the mixed economy system which implies co-existence of public sector and private sector.
b) Political Environment: This includes the political system, the government policies and attitude towards the business community and the unionism. All these aspects have a bearing on the strategies adopted by the business firms. The stability of the government also influences business and related activities to a great extent. It sends a signal of strength, confidence to various interest groups and investors.
c) Legal Environment:  This refers to set of laws, regulations, which influence the business organisations and their operations. Every business organisation has to obey, and work within the framework of the law. The important legislations that concern the business enterprises include: Companies Act, 1956, Foreign Exchange Management Act, 1999, The Factories Act, 1948, Industrial Disputes Act, 19112, Payment of Gratuity Act, 19112, Industries (Development and Regulation) Act, 1951 etc. Besides, the above legislations, the following are also form part of the legal environment of business.
(i) Provisions of the Constitution
(ii) Judicial Decisions.
d)  Social Environment: The social environment of business includes social factors like customs, traditions, values, beliefs, poverty, literacy, life expectancy rate etc. The social structure and the values that a society cherishes have a considerable influence on the functioning of business firms. For example, during festive seasons there is an increase in the demand for new clothes, sweets, fruits, flower, etc.
e) Technological Environment:  Technological environment include the methods, techniques and approaches adopted for production of goods and services and its distribution. The varying technological environments of different countries affect the designing of products. In the modern competitive age, the pace of technological changes is very fast. Hence, in order to survive and grow in the market, a business has to adopt the technological changes from time to time.
f) Demographic Environment:  This refers to the size, density, distribution and growth rate of population. All these factors have a direct bearing on the demand for various goods and services.
g) Natural Environment:  The natural environment includes geographical and ecological factors that influence the business operations. These factors include the availability of natural resources, weather and climatic condition, location aspect, topographical factors, etc. Business is greatly influenced by the nature of natural environment. For example, sugar factories are set up only at those places where sugarcane can be grown. It is always considered better to establish manufacturing unit near the sources of input.

(b) What important changes do you notice in the development strategy in Indian economy?
2.       (a) Write a brief note on price controls in India.
(b) “The scenario of MNCs is effective to the Indian economy.” Justify.
3.       (a) Explain the instruments of monetary policy with reference to India.
Ans: Instruments of Monetary Policy or Credit Control tools:  
The instruments used by the central Bank for controlling the supply of bank money are classified into two categories namely
A)     General Instruments and
B)      Selective Instruments.
A)     The General Instruments of Credit Control:  These instruments are called general because they are uniformly applicable to all commercial banks and in respect of loans given for all purposes. The general instruments are as follows:
                    i.      The Bank rate policy: Bank rate is the official rate at which the central bank of the country rediscounts bills offered by the commercial banks.
When the central bank wants to bring about a reduction in bank credit, it raises the bank rate. The effect is that the commercial banks raise the market rate in order to retain their profit margin. Rise in the market rate brings about a reduction in the volume of bills offered by the customers to the commercial banks. If the volume of bills is less, the amount of money going out from the commercial banks to the people is less i.e.: the supply of money is less.
If the central bank wants to bring about an expansion of Bank credit it lowers the bank rate. The commercial banks can lower the market rate due to which the people offer more bills for discounting and the supply of money increases.
                  ii.      Open Market Operations:  The Central bank enters in to the bond market and purchases or sells government securities for bringing about expansion or reduction of credit.
                iii.       Variable Reserve Ratio: Every commercial bank in the country is under a legal obligation to keep a certain proportion of their deposits in the form of cash with the central bank of the country. The ratio of these cash deposits to the total deposits of a commercial bank is called the cash reserve ratio. RBI is authorised to change the rate within that margin depending upon the requirements of the time.  When the banks keep more cash with the central bank they are left with less cash for advancing loans. The supply of credit money declines.
                 iv.            Statutory Liquidity Ratio (SLR): It is legally obligatory on the part of all commercial banks to invest a certain part of their deposits in government bonds. The ratio of the money invested in government bonds to the total deposits is called the statutory liquidity ratio. The RBI is authorised to fix and change the SLR within this margin.
When it wants to bring about a reduction of credit, it increases the SLR. The commercial banks have to invest a larger part of their deposits in government bonds. To that extent they are left with less cash for advancing loans that puts a brake on their capacity to extend credit.
                   v.            Repo Rate: This is the rate at which RBI advances short term funds to the commercial banks. A rise in the repo rate means that the commercial banks have to pay higher rates of interest to RBI. Consequently they have to charge higher rates of interest to their customers. The cost of money is raised. The demand for money falls and the amount of money flowing from the RBI to the commercial banks and thereafter from the commercial banks to the public is reduced.
B)      Selective Instruments of Credit Control: These instruments of monetary policy can be used in respect of any particular bank or in respect of a loan given against a particular security. Hence they are called selective instruments. The prominent amongst them are as follows:
i.        Regulation of credit margin: Whenever a commercial bank gives a loan against a tangible security, it maintains a margin between the value of the security and the amount of the loan given. This is necessary for maintaining safety of the bank. It also provides an instrument to the central bank to control the volume of credit given against a particular security.  This instrument is especially used for preventing cornering of stocks of essential raw materials.
ii.      Direct Action:  The central bank gives instructions to the commercial banks in respect of their lending policies. If a particular bank ignores the instructions RBI can take disciplinary actions against it. The action consists of charging a penal rate of interest to the offending bank, stopping lending to that bank or rejecting the bills offered by that bank for discounting. In any case the bank has to raise the rate charged to the customers which drives the customers away from that bank.
iii.    Moral suasion: The central bank interacts with the commercial banks and urges them to adopt a particular credit policy. The commercial banks accept the policy suggested by the central bank because they have a respect for the central bank.
Moral suasion is better than direct action. It is preventive whereas direct action is curative. A frequent direct action taken by the central bank spoils the atmosphere between the central bank and the commercial banks. Hence as far as possible the central bank relies upon moral suasion.
iv.     Consumer credit: The commercial banks advance loans to enable their customers to purchase durable costly consumer goods. The central bank can prescribe the rate of interest which they have to charge on these loans. It can also fix the installments in which the loans are to be recovered. If the rate of interest is raised and the number of installments is reduced it is difficult for the people to use them. The demand for the concerned consumer commodity falls.
v.       Publicity: The central bank of the country gives a wide publicity to its policy through its publications. The commercial banks accept that policy even when the central bank does not insist upon it. This method is also widely used by the central banks in developing countries.
In a developing country like India, the selective instruments are used more. They produce positive as well as negative effect. They directly bring about the desired change. They can be effective even if the country does not like a well organized money market and capital market.

(b) What is the changing structure of private savings in India?
4.       (a) Explain the redressal machinery under the Consumer Protection act.
The following agencies established under the Consumer Protection Act for the redressal of consumers disputes:
a)      A District Consumer Disputes Redressal Forum to be known as the "District Forum" established by the State Government   in each district of the State by notification. The State Government may, if it deems fit, establish more than one District Forum in a district;
b)      A State Consumer Disputes Redressal Commission to be known as the "State Commission" established by the State Government in the State by notification; and
c)       A National Consumer Disputes Redressal Commission established by the Central Government by notification.
1. The District Consumer Protection Council At the lowest level are the District Forums and these are established in each District and have jurisdiction to entertain complaints where the value of goods or services and the compensation if any, claimed does not exceed Rs.20,00,000 (TWENTY LAKHS), and a complaint can be filed in a District Forum within the local limits of which
a)      The opposite party resides or
b)      Carries on his business or works for gain or
c)       Where the cause of action arises.
Membership: The District Consumer Protection Council (hereinafter referred to as the District Council) shall consist of the following members:
a.       The collector of the district (by whatever name called) who shall be its Chairman; and
b.      Such number of other official and non-official members representing such interest as maybe described by the state government.
Objects of the District Council: The Objects of every District Council shall be to promote and protect within the district the rights of consumers laid down in the clause (a) to (f) of Section 6 (National Consumer Protection Council)
2. The State Consumer Protection Councils: The State Consumer Disputes Redress Commission is established in each state and these have jurisdiction to entertain complaints where the value of goods or services and the compensation if any, claimed exceeds Rs.20,00,000 (TWENTY LAKHS) but does not exceed Rs.1,00,00,000 (ONE CRORE).
a.       The Minister in-charge of consumer affairs in the State Government who shall be its Chairman;
b.      Such number of other official or non-official members representing such interests as may be prescribed by the State Government.
Objects of state council: The objects of every State Council shall be to promote and protect within the State the rights of the consumers laid down in clauses (a) to (f) of section 6. (Objects of National Council)
3. The Central Consumer Protection Council: The Central Government may, by notification, establish with effect from such date as it may specify in such notification, a council to be known as the Central Consumer Protection Council (hereinafter referred to as the Central Council). The National Consumer Disputes Redressal Commission has jurisdiction to entertain complaints where the value of the goods or services and compensation if any claimed exceeds Rs.1,00,00,000 (ONE CRORE)
a)      The Minister in charge of consumer affairs in the Central Government, who shall be its Chairman, and
b)      Such number of other official or non-official members representing such interests as may be prescribed.
The objects of the Central Council shall be to promote and protect the rights of the consumers such as-
a)      The right to be protected against the marketing of goods 2[and services] which are hazardous to life and property;
b)      The right to be informed about the quality, quantity, potency, purity, standard and price of goods 1[or services, as the case may be], so as to protect  the consumer against unfair trade practices;
c)       The right to be assured, wherever possible, access to a variety of goods and services at competitive prices;
d)      The right to be heard and to be assured that consumers'  interests will receive due consideration at appropriate forums;
e)      The right to seek redressal against unfair trade practices 1[or restrictive trade practices] or unscrupulous exploitation of consumers; and
f)       The right to consumer education.
(b) Explain the nature of India’s foreign trade.

5.       (a) Explain the impact of structural reforms in India on household income.
(b) State the position of India in terms of global integration in IT Revolution.

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